2005 (4) TMI 551 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Tax rate applicable to maize seeds under the Bihar Finance Act, 1981.
2. Consistency of tax assessment orders.
3. Influence of the Commissioner of Commercial Taxes' instructions on assessment orders.
4. Applicability of the principle of res judicata in tax assessment.

Detailed Analysis:

1. Tax Rate Applicable to Maize Seeds:
The primary issue is whether maize seeds should be taxed at 4% as cereals under entry No. 12 of the notification dated December 26, 1977, or at 8% as unspecified goods under section 12 of the Bihar Finance Act, 1981. The petitioners argued that maize seeds should be taxed at 4% as cereals, as they are included in the definition of cereals under entry No. 12, which includes maize in all forms. The State contended that maize seeds are hybrid seeds chemically treated with poison for better germination and are not cereals, which are grains used for food. The court held that maize seeds, being chemically treated and unfit for human or livestock consumption, cannot be considered cereals. Therefore, the maize seeds are not covered by entry No. 12, and the tax rate of 8% applies.

2. Consistency of Tax Assessment Orders:
The petitioners challenged the inconsistency in tax assessment orders, where some divisions charged 4% while others charged 8%. The court acknowledged the inconsistency but clarified that the correct interpretation of the law is paramount. The court held that the previous inconsistent orders do not justify continuing the error, and the correct rate of 8% should be applied.

3. Influence of the Commissioner of Commercial Taxes' Instructions:
The petitioners argued that the assessment orders were influenced by the Commissioner's instructions dated May 7, 2002, which prescribed an 8% tax rate for maize seeds. The court noted that this instruction had already been quashed in a previous case (Pro Agro Seeds Co. Ltd. v. State of Bihar). Furthermore, the court found that the assessment orders did not rely on the quashed instruction but were based on statutory provisions. Therefore, the argument that the assessment orders were influenced by the Commissioner's instructions was dismissed.

4. Applicability of the Principle of Res Judicata in Tax Assessment:
The petitioners argued that since maize seeds were taxed at 4% for many years, this position should not be changed. They cited the Supreme Court case Radhasoami Satsang v. Commissioner of Income-tax, which held that a consistent position on a fundamental aspect should not be changed if not challenged earlier. However, the court distinguished this case, noting that the issue at hand was a pure question of law. The court held that the principle of res judicata does not apply to correct a legal mistake, and the correct interpretation of the law should prevail.

Conclusion:
The court concluded that maize seeds are not cereals under entry No. 12 of annexure III of the Bihar Finance Act, 1981, and should be taxed at the general rate of 8%. The writ applications were dismissed, affirming the tax rate of 8% for maize seeds.